HP pays millions to settle school bribery charges

Hewlett Packard will pay over $16 million to settle charges that it sweetened …

Hewlett Packard has agreed to fork over $16.25 million to settle charges that the computer maker "lavished" gifts on two Texas school districts in order to win government contracts to provide computer equipment. Acting on tips from whistleblowers within the Dallas and Houston school districts, the Department of Justice and Federal Communications Commission investigated the allegations.

"Meals and entertainment—including trips on a yacht and tickets to the 2004 Super Bowl—were provided by the contractors to get inside information and win contracts that were supposed to be awarded through a competitive bidding process," the Federal Communications Commission disclosed late on Wednesday.

The FCC's Schools and Libraries or "E-Rate" fund is the program that was allegedly compromised. E-Rate provides money to libraries and schools for computer and networking gear. Contractors like HP are supposed to bid for school district cash under an open process.

The suits were filed under the provisions of the False Claims Act, which allows the whistleblowers to sue on behalf of the United States and receive some of the recovery money. But, as is often the case in these settlements, while the government charged that HP was "conspiring to rig the competitive bidding of E-Rate contracts," the company is admitting no crime.

"This Agreement is neither an admission of liability by HP, which denies the claims described above, nor a concession by the United States that its claims are not well-founded," the settlement explains.

Bottom line: HP will pay $7,402,441 for the Dallas contract and $8,847,559 for its contracting bids in Houston.

We did nothing wrong, and we'll never do it again

HP has also agreed to a compliance program which involves training its employees in how to comply with E-Rate contracting rules (presumably someone will tell them not to hand out Super Bowl and yacht trip tickets to school officials).

The company's employees will have to certify that they "are not aware of and have no reason to suspect that anyone has provided or has promised to provide a gift, payment or entertainment, or anything else of value, on HP's behalf in connection with any bid or agreement that might violate the E-Rate Program Rules or other applicable law, or any HP policy."

Further actions are being taken against former HP business partners Micro Systems Engineering (MSE) and Analytical Computer Services (ACS), and a number of individuals.

Hewlett Packard sent us this press release on the settlement:

"HP requires that all employees and partners adhere to lawful and ethical business practices. The activities at the center of this investigation occurred more than five years ago, the partner relationships have been terminated and the employees involved are no longer with the company. HP fully cooperated with the authorities and the matter is now resolved."

"Woops, I dropped a superbowl ticket on your desk. I'll leave the room and come back and see if the situation has cleared".

Danish companies is tax exempt from bribes, as long as it's to other countries. Corruption is sadly a part of doing business outside northern Europe (and Singapore and New Zealand).

Isn't it everywhere in the world?!

Well I guess strictly speaking, you're tax exempt everywhere in the world.

Though IMHO corruption doesn't really occur in northern Europe (and Singapore and New Zealand apparently), there have been cases, but they're treated like "OMG, what happened". Offering a superbowl ticket in Denmark for instance would be a very sure way to never do any business, and maybe seeing your company on the frontpage of a newspaper.

Obviously it's a healthy sign that HP and Texas is ousted like this, as in many countries it would just be considered natural.

they shoulda done what apple did to my state, agree to sell ibooks for extremely cheap for 4 years and then after that give them a minor education discount. After the infrastructure was setup, after the software, training, staff, course layout was all revolving around apple.

We've got a $25 limit on gifts from suppliers. Gee, Superbowl tickets probably blow past anyone's ethical limits. How can they say they did nothing wrong? Statements like that will make me think twice before buying anything from HP in the future (of course, if they were to sweeten the pot...).

they shoulda done what apple did to my state, agree to sell ibooks for extremely cheap for 4 years and then after that give them a minor education discount. After the infrastructure was setup, after the software, training, staff, course layout was all revolving around apple.

Moral of the story? Sell like a drug dealer, not a salesman.

School districts don't think in these terms. They just buy whatever is cheapest and hack it together. People tend not to stick around in school IT; it doesn't pay well comparatively and you get handed hardware/software that's already been purchased by administrators and asked to implement it. There is little strategic decision in technology purchases in most school districts.

I'm not being sarcastic either; school districts are incredibly inefficient and the textbook example of petty politics destroying organizations (they're the kind of place where a supervisor will weed out their best employees because those employees are the biggest threat to the supervisor's job.) Thus they tend to accumulate stupid people who make terrible decisions.

It seems pretty corrupt to settle charges for cash without establishing guilt. I'm not against fines, but they should be court ordered and in conjunction with additional punishment -- like being banned from bidding for a period of time.

What always peeves me is the no-fault settlements. In the grand scheme of things, $16 million doesn't really mean anything to our federal government. Why does the FCC accept this as a settlement if HP won't admit fault?

If I were in charge of one of the government regulatory bodies, I would set a "no fault" = "no settlement" standard. Either come out and take fault or go to trial.

I'm not against fines, but they should be court ordered and in conjunction with additional punishment -- like being banned from bidding for a period of time.

I agree. As a MINUMUM, there needs to be a ban on HP bidding on contracts in those two school districts for at least a year. Having it apply to the state government of Texas would also be reasonable. It might be difficult to force the other local governments to follow suit, and I don't believe a wider ban would be appropriate.

Any punishment that doesn't include a ban will be ineffective in the long run. HP probably made more than $16M in profit on the sales and service contracts, so I expect they're still in the black in these districts.

Killing Time wrote:

employees will have to certify that they "have no reason to suspect that anyone has provided or has promised to provide a gift... or anything else of value"

"or anything else of value"

that would include the HP computers from the contract? zing.

Way to misquote. Read the ENTIRE quote, and you'll see that your response was grossly in error.

We need to be careful lest $8M here and there becomes "just the cost" of doing corrupt business and getting caught occasionally, which could be well worth the risk on big projects. With so little chance of real criminal repercussions in these cases, the emphasis can go to not getting caught again, instead of not committing the crime in the first place.

This sort of thing happens regularly in IT - at least in the commercial sector where I work now (I have not been part of a school district in well over a decade). I've been to vendor-paid lunches and dinners, baseball and football games (seats in the vendor box), pre-screenings of popular movies. And yes, once on a vendor-chartered excursion boat. I suppose it could have been called a yacht, but that would be stretching things a bit.

I talk to colleagues who have taken home computers, monitors, servers - all "gifted" to them from major IT vendor brands like Dell, HP, NetApp, EMC. Personally I think the most valuable item I've taken home is a jacket with a logo on it; hats and shirts and the like are common.

I like to think none of this ever changed my input to the buying decisions, but I suppose I can never be sure. Vendors wouldn't keep doing this sort of thing if it didn't work at some level after all. I've never been comfortable with the process, and have always voiced the opinion that I'd rather the vendors would simply be more clear about the capabilities of their products and services on their websites, or just loan us the product or service and let us perform our own direct head-to-head testing. I would always rather that the product sold itself, rather than needing all that fake-chummy 'relationship building' from the sales team.

But in a lot of cases, this sort of outing was kind of the only way to get face time with the sales engineers who could answer detailed technical questions about product/service capabilities. And it seemed like accepted practice at the companies I was working for, so I went along to get along.

That's what happens when you don't follow SBC (Standards of Business Conduct) rules! Sadly, HP's CEO don't lead by example, so what else can you expect?

Mark Hurd paid with his corporate credit card for lavish dinners with a female contractor of HP. However, he did it probably to avoid detection from his wife by not using his own credit card. He didn't win anything for the company.

'We didn't do anything wrong,' or 'too big to prosecute.' Why are corporations so often exempt?

I suspect even if some individuals were charged, they'd be just scapegoats anyway.

+1

Companies hire enough corporate counsel and employ enough strategy to never be nailed down and forced to admit that they actually did anything wrong. We're settling but we didn't do anything wrong and you can't make us say we did. Right....

I'm sure there are situations where innocent companies have been forced to settle because the cost of fighting in court is too high to make sense, but I can't recall offhand a case like that.

Texas is a corrupter's playground. In El Paso, TX, this stuff goes on all the time, but folks only get caught once in a while. Most recently, an associate superintendent was indicted by the FBI along with the businessman that did the bribing.

As with other posters, it is about the corporation's treatment. As a society we are built upon the proposition that all men are created equal; however, what of corporations? The Supreme Court has decided that such entities have the rights of a citizen to contribute to political campaigns which makes me wonder when courts will decide that corporations can be treated like citizens when it comes to justice.

they shoulda done what apple did to my state, agree to sell ibooks for extremely cheap for 4 years and then after that give them a minor education discount. After the infrastructure was setup, after the software, training, staff, course layout was all revolving around apple.

Moral of the story? Sell like a drug dealer, not a salesman.

School districts don't think in these terms. They just buy whatever is cheapest and hack it together. People tend not to stick around in school IT; it doesn't pay well comparatively and you get handed hardware/software that's already been purchased by administrators and asked to implement it. There is little strategic decision in technology purchases in most school districts.

I'm not being sarcastic either; school districts are incredibly inefficient and the textbook example of petty politics destroying organizations (they're the kind of place where a supervisor will weed out their best employees because those employees are the biggest threat to the supervisor's job.) Thus they tend to accumulate stupid people who make terrible decisions.

That's not how it goes in my district.

We have an IT department. The IT department looks at the amount of money they have to spend per-computer prior to bidding, and builds the best computer they can find from a Tier 1 supplier (e.g., HP, Dell, etc.) to fit within that budget. Then we write a bid request and publish it.

Note that we may write very stringent requirements into the bid (to eliminate the possibility of Harry's House of Hardware providing a shoddy-but-cheap quote that sticks us with crap equipment and service), but we're incredibly strategic about our purchasing. We have to be --where businesses have a lifecycle of 3 years on equipment, we often have 5-10, depending on what that equipment is. It has to be reliable, flexible, upgradable, and durable.

P.S. School district IT folks may not be paid a lot --but where I am, they care about the teachers, support staff, and students, and they care about their job quality. I won't say school districts don't have some efficiency issues, but in any school district with a real IT department, people won't let things go down the way you have described.

It seems pretty corrupt to settle charges for cash without establishing guilt. I'm not against fines, but they should be court ordered and in conjunction with additional punishment -- like being banned from bidding for a period of time.

US Gov: oh hai guiz u in our texas bribin our skoolz?HP: oh hai guv we does brib u 2 how many moneys u wantUS: we no ur bribin so our price is 8 TRILLION MONeyzHP: o we only hass 8 million on us guvUS: justice is sold^ next plox thx

employees will have to certify that they "have no reason to suspect that anyone has provided or has promised to provide a gift... or anything else of value"

"or anything else of value"

that would include the HP computers from the contract? zing.

Way to misquote. Read the ENTIRE quote, and you'll see that your response was grossly in error.

I believe KT was just being humorous, not misquoting - I laughed, at least.

I can just see HP or other vendors now: "Oh, on our way to today's meeting, some anonymous person on the street asked me to hand this envelope to you - I don't know if it contains anything of value, like SuperBowl tickets or something like that." *wink*

shrug, come on, we've all been given freebies from outside vendors. It might not completely convince you to buy their stuff, but it sure helps. You can't be taking all their gifts, then turning around and shafting them.

You can refuse the gifts sure, and remain unbiased as you can be. But in this HP case, something's obviously happened for them to go all textbook on HP. Come on now. Their sales reps have entertainment expenses which all go through management to approve. And they wouldn't go through all that effort if they didn't feel that the sale was all but sold.

We have an IT department. The IT department looks at the amount of money they have to spend per-computer prior to bidding, and builds the best computer they can find from a Tier 1 supplier (e.g., HP, Dell, etc.) to fit within that budget. Then we write a bid request and publish it.

Note that we may write very stringent requirements into the bid (to eliminate the possibility of Harry's House of Hardware providing a shoddy-but-cheap quote that sticks us with crap equipment and service), but we're incredibly strategic about our purchasing. We have to be --where businesses have a lifecycle of 3 years on equipment, we often have 5-10, depending on what that equipment is. It has to be reliable, flexible, upgradable, and durable.

P.S. School district IT folks may not be paid a lot --but where I am, they care about the teachers, support staff, and students, and they care about their job quality. I won't say school districts don't have some efficiency issues, but in any school district with a real IT department, people won't let things go down the way you have described.

The SD I worked for had an IT department, and Exelius hit the nail on the head. It really comes down to who's in charge. Unfortunately in the public sector, those in charge are usually the least qualified.

At some level this makes me want to weep. I used to work for HP--over a decade ago--and it is painful to see how how HP, as a company, has sunk. Ethics, engineering driven, innovation, and respect for people were hallmarks of HP and the HP Way. Now HP seems more ethically challenged than the average company. I don't care what their market cap is--they are a hollow shell of their former selves.

It seems pretty corrupt to settle charges for cash without establishing guilt. I'm not against fines, but they should be court ordered and in conjunction with additional punishment -- like being banned from bidding for a period of time.

US Gov: oh hai guiz u in our texas bribin our skoolz?HP: oh hai guv we does brib u 2 how many moneys u wantUS: we no ur bribin so our price is 8 TRILLION MONeyzHP: o we only hass 8 million on us guvUS: justice is sold^ next plox thx

In Japan, the government has a 'gift' budget set aside to reciprocate 'gifts' elected officials receive, which has no public scrutiny or auditing. It's not too surprising given Japanese culture that the public and the media don't seem bothered by this institutionalized graft.

In Japan, the government has a 'gift' budget set aside to reciprocate 'gifts' elected officials receive, which has no public scrutiny or auditing. It's not too surprising given Japanese culture that the public and the media don't seem bothered by this institutionalized graft.

You don't appear to understand what "graft" is. The fact that gifts are reported (and probably logged), and that a gift is given in return, makes it courtesy, and not graft

Matthew Lasar / Matt writes for Ars Technica about media/technology history, intellectual property, the FCC, or the Internet in general. He teaches United States history and politics at the University of California at Santa Cruz.